Africa is hot … and I’m not just referring to the Sahara desert.
For example, in 2014 the average foreign stock fund as measured by the MSCI EAFE Index had a -4.9% return, whereas some of the best funds investing in Africa stocks put in gains of more than 10%.
But can Africa stocks stay hot in 2015 and beyond?
No one can answer this question with certainty, but if recent positive economic projections are any indication, Africa could remain a hot region to invest for quite some time. However, the hottest part of the African continent for investing is in the less-hot South Africa region.
For example, the World Bank’s “Doing Business” Report for 2015 said that Sub-Saharan Africa accounts for five of the 10 top improving countries in 2013-2014, and that “the region also accounts for the largest number of regulatory reforms making it easier to do business in the past year.”
While too many investors are blinded and arguably too concerned about the Ebola virus in western Africa, they may miss out on countries in the southern region that could be the biggest emerging markets story of the next decade.
Now may be a good time to check out the three best funds investing in Africa stocks:
3 Best Funds Investing in Africa Stocks: T. Rowe Price Africa & Middle East Fund (TRAMX)
One of the first mutual funds to concentrate in Africa stocks, the T. Rowe Price Africa & Middle East Fund (TRAMX), is an outstanding fund to consider buying.
Emerging markets like Africa tend to have market inefficiencies that make active management a potential advantage. Lead manager Oliver D.M. Bell, has been at the helm of TRAMX for more than three years but has been a portfolio manager for Africa and Middle East portfolios and other emerging markets strategies for 14 years.
TRAMX management appears to be effectively capturing the best of what Africa has to offer, as evidenced by the fund’s outstanding 2014 return of 9.2% and a three-year annualized return of 17.3%.
Top holdings include South African companies such as Naspers Limited, Aspen Pharmacare Holdings Limited and Mtn Group Limited.
Expenses are average at 1.42% and the minimum initial purchase for TRAMX is $2,500.
3 Best Funds Investing in Africa Stocks: iShares MSCI South Africa Index (ETF) (EZA)
If you are looking for an ETF that can be used to gain exposure to healthy growth trends on the African continent, iShares MSCI South Africa Index (ETF) (EZA) can be a good choice for you.
To capture growth in the region, iShares MSCI South Africa tracks the cap-weighted MSCI South Africa Index.
This ETF’s top three sectors, which comprise nearly 60% of the portfolio, include financial services, technology and consumer cyclical stocks, all of which can excel in a growing economy.
If you are looking for income, the 12-month yield is decent at 2.2%.
The expense ratio, at 0.62%, is reasonable for a concentrated emerging markets fund.
3 Best Funds for Investing in Africa Stocks: Market Vectors Egypt Index (ETF) (EGPT)
If you want to focus more on the northern region of Africa, or if you want to add a fund that can compliment a fund focusing on South Africa, Market Vectors Egypt Index (ETF) (EGPT) can be a smart consideration.
Egypt is not only hotter than South Africa in literal terms but the country is among the hottest in Africa in the figurative and financial sense.
Market Vectors Egypt was a top performer in the Africa and Middle East group of funds in 2014 with an outstanding price gain of 13.6%, which rivals that of the United States’ 13.7% performance as measured by the S&P 500 Index.
One significant performance caveat: like other emerging markets, the economic and geopolitical environment can make for volatility with regard to short-term price movements. Price swings in just one day can be 4% or more, while annual movements can be positive or negative 40% or more.
But reward does not often come without significant risk.
On a similar note, the high risk nature of EGPT brings with it a sizable 4.6% yield. The expense ratio is 0.98%, or $98 for every $10,000 invested.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities.
